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Construction service v/s works contract service (Service Tax)

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This query is : Resolved



( Author )
10 April 2012

My query is that what is the main difference between construction service (commercial or residential complex service) and works contract service under service contract?

I have read the relevant definations, but i am not able to understand the basic difference. So please explain me with a practical example.

after reading all stuff, I came to conclusion that if builder sells materials for construction to the developer/contractor then it is Works contract service. But if developer/contractor uses his own material then it falls under Construction Service..

Am i right?? please clarify.

Secondly what is meant by "transfer of property in goods" as mentioned in works contract defination..


CA CS Amit S. Kedia

( Expert )
10 April 2012

Works contract is a composite contract for supply of goods and services. A composite
works contract is vivisected and,-
(i) VAT / sales tax is leviable on transfer of property in goods involved in the execution of works contract and service tax will be leviable on services provided in relation to the execution of
works contract.

As per circular no.F. No. B1/16/2007-TRU-
under works contract service only those works contracts wherein transfer of property in goods involved in execution of such works contract is leviable to VAT/ sales tax is liable for Service tax.
Hence If Vat on such works contract then it will fall under works contract.
generally, Service provided by builders is taxable in contruction of complex service, since they do not undertake any contract for carrying out any work. They build property on their own and collect advances from the customer.

They receive advances from the client that is why are liable for service tax otherwise they would not have been liable for service tax.
By collecting advances from client, they are providing construction service to such clients.

On other hand, if Such developer/builder give a contract for building the property then such cotractor is liable for service tax under works contract and he is also liable for VAT.

Builders are not works contractor and hence liable under contruction of complex service.

Thanks
Amit kedia


CA CS Amit S. Kedia

( Expert )
10 April 2012

Continue..

Builders are also liable for VAT in maharashtra @ 1% w.e.f 01/04/2010 but the same is not in the nature of works contract.
The same is collected on gross amount charged on sale of flat/property.
This VAt is collected even on trasfer of immovale property, this is levied because it is not only transfer of immovale property but also also transfer of right in property and transfer of right is chargeable to VAT.


CA PARTH SHAH

( Author )
10 April 2012

so in works contract, whether builder will sell materials to the contractor?



CA PARTH SHAH

( Author )
10 April 2012

so in works contract, whether builder will sell materials to the contractor and vat will be paid by builder by collecting from contractor?




CA CS Amit S. Kedia

( Expert )
10 April 2012

No, Builder is not liable for service tax under works contract.
Builder/Developer gives entire contract of construction to contractor.
Such contractor is liable under works contract.


CA PARTH SHAH

( Author )
10 April 2012

Then who will pay VAT?? there is no sale element between builder and contractor?


CA CS Amit S. Kedia

( Expert )
10 April 2012

Contractor pays VAT under works contract because he is carrying out the work on behalf of builder.


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